nep-int New Economics Papers
on International Trade
Issue of 2014‒11‒28
fifteen papers chosen by
Luca Salvatici
Università degli studi Roma Tre

  1. Stricter regulation boosts exports: the case of Maximum Residue Levels in pesticides By Foletti, Liliana; Shingal, Anirudh
  2. Trade Liberalization and Aftermarket Services for Imports By ISHIKAWA Jota; MORITA Hodaka; MUKUNOKI Hiroshi
  3. Buyer-Seller Relationships in International Trade: Do Your Neighbors Matter? By Fariha Kamal; Asha Sundaram
  4. The Impact of the African Growth and Opportunity Act (AGOA): An Empirical Analysis of Sub-Saharan African Agricultural Exports By Zenebe, Addisalem; Peterson, Wesley; Wamisho, Kassu
  5. Import Competition, Domestic Regulation and Firm-Level Productivity Growth in the OECD By Sarah Ben Yahmed; Sean Dougherty
  6. Food Prices and the Multiplier Effect of Trade Policy By Paolo Giordani; Nadia Rocha; Michele Ruta
  7. European High-End Products in International Competition By Lionel Fontagné; Sophie Hatte
  8. Top Income Inequality, Aggregate Saving and the Gains from Trade By Lixin Tang
  9. Nonlinear Gravity By Wyatt J. Brooks; Pau S. Pujolàs
  10. Some simple analytics of trade and labor mobility By Artuc, Erhan; Chaudhuri, Shubham; McLaren, John
  11. Misaligned distance: Why distance can have a positive effect on trade in agricultural By Dreyer, Heiko
  12. The costs and benefits of leaving the EU By Ottaviano, Gianmarco; Pessoa, João Paulo; Sampson, Thomas; Van Reenen, John
  13. The middle-income trap from the viewpoint of trade structures By Kumagai, Satoru
  14. Climate Policy and Border Measures: The Case of the US Aluminum Industry By Sheldon, Ian; McCorriston, Steve
  15. The Rhetoric of Closed Borders: Quotas, Lax Enforcement and Illegal Migration By Facchini, Giovanni; Testa, Cecilia

  1. By: Foletti, Liliana; Shingal, Anirudh
    Abstract: Constructing an original panel on Maximum Residue Levels (MRLs) in pesticides for 50 countries over 2006-2012, this paper studies the effect of heterogeneity in MRL regulation on bilateral trade. We find evidence of regulatory heterogeneity diminishing trade at the extensive margin when the exporter faces more stringent regulation abroad, suggesting compliance costs in entering the destination market. Significantly, however, we also find strong evidence of regulatory heterogeneity increasing trade at the intensive margin for exports coming from countries that set the strictest standards, alluding to the positive informative effect of such regulation.
    Keywords: Sanitary and Phytosanitary Measures, MRLs, Regulation, Heterogeneity, Trade
    JEL: F13 F14 I18
    Date: 2014–10–01
  2. By: ISHIKAWA Jota; MORITA Hodaka; MUKUNOKI Hiroshi
    Abstract: We analyze the provision of repair services (aftermarket services that are required for a certain fraction of durable units after sales) through an international duopoly model in which a domestic firm and a foreign firm compete in the domestic market. Trade liberalization in goods, if not accompanied by the liberalization of service foreign direct investment (FDI), induces the domestic firm to establish service facilities for repairing the foreign firm's products. This weakens the firms' competition in the product market, and the resulting anti-competitive effect hurts consumers and reduces world welfare. Despite the anti-competitive effect, trade liberalization may also hurt the foreign firm because the repairs reduce the sales of the imported good in the product market. Liberalization of service FDI helps resolve the problem because it induces the foreign firm to establish service facilities for its own products.
    Date: 2014–11
  3. By: Fariha Kamal; Asha Sundaram
    Abstract: Using confidential U.S. customs data on trade transactions between U.S. importers and Bangladeshi exporters between 2002 and 2009, and information on the geographic location of Bangladeshi exporters, we show that the presence of neighboring exporters that previously transacted with a U.S. importer is associated with a greater likelihood of matching with the same U.S. importer for the first time. This suggests a role for business networks among trading firms in generating exporter-importer matches. Our research design also allows us to isolate potential gains from neighborhood exporter presence that are partner-specific, from overall gains previously documented in the literature.
    Keywords: exporter-importer match, trade networks, partner-specific spillovers
    JEL: F1 F14 L14 R12
    Date: 2014–10
  4. By: Zenebe, Addisalem; Peterson, Wesley; Wamisho, Kassu
    Abstract: The African Growth and Opportunities Act (AGOA) which was signed into law in 2000 as part of U.S. trade legislation has the objectives of increasing trade and investment between the U.S. and eligible Sub-Saharan African (SSA) countries, by reducing or eliminating tariffs applied to African exports of different products. This Act represents a promising approach to economic growth and development in SSA through international trade. This research paper examines the impact of AGOA on African agricultural exports. The study uses the gravity trade model framework and panel data depicting annual agricultural trade from 35 eligible SSA countries to the United States over years both before and after AGOA’s implementation (1990-2011). There is wide variation in trade flows and the economic characteristics of the panel data obtained from the 35 SSA countries include numerous observations of zero trade flows. As the gravity equation is generally estimated in logarithms which are not defined for zero values, alternative statistical estimation methods, the Heckman model and the Poission family of regression modeling techniques, were used to test whether the inclusion of the zero values would change the parameter estimates significantly. The study differs from previous empirical analyses of AGOA which did not attempt to account for zero trade flows. In addition, most of these studies were based on data from the early years of AGOA while this study includes more recent data and is based on a longer time period. The statistical results indicate that the AGOA trade preferences do not have a statistically significant impact on SSA agricultural exports, although some of the model results indicate that AGOA may have a positive effect on SSA agricultural exports to the United States. Results from some of the models indicate that an increase in per capita GDP in the SSA countries decreases agricultural exports to the United States. Likewise, currency appreciation of the SSA countries decreases the agricultural trade flows. A tariff rate quota and the exclusion of some agricultural products from the legslation still limit AGOA’s broader positive economic impact. Further liberalization, reform and extension of AGOA for a longer time, investment to improve trade facilitation services, agricultural productivity and processing to meet high quality standards, and adoption of a comprehensive development assistance policy are needed if the African countries are to realize sustained economic growth and development. Keywords: AGOA, Agriculture, SSA, United States, Gravity Model
    Keywords: Agricultural and Food Policy, International Development, International Relations/Trade,
    Date: 2014
  5. By: Sarah Ben Yahmed (IEP Aix-en-Provence - Sciences Po Aix - Institut d'études politiques d'Aix-en-Provence - Institut d'Études Politiques [IEP] - Aix-en-Provence - Aix Marseille Université - Fondation Nationale des Sciences Politiques [FNSP], GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - École des Hautes Études en Sciences Sociales (EHESS) - CNRS : UMR7316); Sean Dougherty (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, OCDE - Organisation de coopération et de développement économiques - OCDE)
    Abstract: This paper examines how import penetration affects firms' productivity growth taking into account the heterogeneity in firms' distance to the efficiency frontier and country differences in product market regulation.
    Keywords: Firm productivity growth ; Behind-the-border regulatory barriers ; Product market regulation ; Import competition, international trade
    Date: 2014–03–14
  6. By: Paolo Giordani; Nadia Rocha; Michele Ruta
    Abstract: This paper studies the relationship between trade policy and food prices. We show that, when individuals are loss averse, governments may use trade policy to shield the domestic economy from large food price shocks. This creates a complementarity between the price of food in international markets and trade policy. Specifically, unilateral actions give rise to a "multiplier effect": when a shock drives up the price of food, exporters respond by imposing restrictions while importers wind down protection, thus exacerbating the initial shock and soliciting further trade policy activism. We test the key prediction of the theory with a new dataset that comprises monthly information on trade measures across 77 countries and 33 food products for the period 2008-11, finding evidence of a multiplier effect in food trade policy. These findings contribute to inform the broader debate on the proper regulation of food trade policy within the multilateral trading system.
    Keywords: Food prices;Commodity price shocks;Trade policy;Econometric models;Loss aversion; Trade policy; Multiplier effect; Food crisis.
    Date: 2014–09–26
  7. By: Lionel Fontagné (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique); Sophie Hatte (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, Université de Rouen - Université de Rouen)
    Abstract: We study international competition in high-end products for 416 detailed HS6 product categories marketed by leading French luxury brands. We construct a world database of trade flows for these products in the period 1994-2009, computing unit values of related bilateral trade flows and analyzing competition among the main exporters. We use the observed distribution of unit values to define a high-end market segment. In 2009, Europe's market share (EU27 plus Switzerland) despite suffering some erosion since 1994, represented three-quarters of the world market. Exports of high-end products are shown to be less sensitive to distance than other products, and found more sensitive to destination country wealth than other products, but only in relation to countries already producing a large range of luxury brands.
    Keywords: Product differentiation ; Market shares ; Unit values
    Date: 2013–11
  8. By: Lixin Tang
    Abstract: I study the implications of top income inequality for the gains from trade in a dynamic model. I argue that higher top income inequality among entrepreneurs can increase the gains from trade for workers. In the model, entrepreneurs face uninsurable idiosyncratic productivity risk, and thus save. Since the most productive entrepreneurs have the highest saving rate and are the ones that export, a reduction in trade costs increases their share of total prots and their savings, which leads to a large increase in the aggregate supply of capital. The welfare gains from trade for workers in the model are 6.4%, which are larger than in comparable benchmarks without top income inequality or capital accumulation. While the typical entrepreneur loses in consumption because of higher labor costs, aggregate consumption by entrepreneurs increases by 3.6%. Empirically, I find a strong relationship between trade openness and the national saving rate in a large sample of countries, consistent with the model. I find a much weaker relationship between trade openness and the investment rate.
    JEL: F1 F4 O1 O4
    Date: 2014–11–06
  9. By: Wyatt J. Brooks; Pau S. Pujolàs
    Abstract: We extend the results of Arkolakis, Costinot and Rodriguez-Clare (2012) to environments with non-homotheticities and show how to measure the welfare gains from trade in a broad class of static, non-CES trade models. In these models, the elasticity of import intensity with respect to trade costs (trade elasticity) is a function, not a constant, implying a nonlinear version of the gravity relationship commonly studied in the empirical trade literature. We have two main results. First, we provide an explicit formula for the trade elasticity, which allows it to be computed in any particular non-homothetic model. Second, we prove that, even in this environment, the elasticity of welfare with respect to trade intensity (welfare elasticity) is equal to the reciprocal of the trade elasticity. We provide several examples of models that are impossible to solve analytically, yet where the welfare elasticity can be solved in closed form using our procedure allowing for one to get a closed form for the gains from trade. We also provide sufficient conditions to compare the gains from trade implied by non-homothetic models to those implied by CES models.
    Date: 2014–11
  10. By: Artuc, Erhan; Chaudhuri, Shubham; McLaren, John
    Abstract: This paper studies a simple, tractable model of labor adjustment in a trade model that allows researchers to analyze the economy's dynamic response to trade liberalization. Since it is a neoclassical market-clearing model, duality techniques can be employed to study the equilibrium and, despite its simplicity, a rich variety of properties emerge. The model generates gross flows of labor across industries, even in the steady state; persistent wage differentials across industries; gradual adjustment to a liberalization; and anticipatory adjustment to a pre-announced liberalization. Pre-announcement induces anticipatory flight from the liberalizing sector, driving up wages there temporarily and giving workers remaining there what this paper calls"anticipation rents."By this process, pre-announcement makes liberalization less attractive to export-sector workers and more attractive to import-sector workers, eventually making workers unanimous either in favor of or in opposition to liberalization. Based on these results, the paper identifies many pitfalls to conventional methods of empirical study of trade liberalization that are based on static models.
    Keywords: Economic Theory&Research,Labor Markets,Labor Policies,Political Economy,Trade Policy
    Date: 2014–11–01
  11. By: Dreyer, Heiko
    Abstract: This contribution argues and proves empirically that trade in agricultural products could be the higher the more distant two trading partners are. Distance in agricultural trade does not only reflect transport costs but also differences in climatic and cultivation conditions and, thus, in resource endowment of two trading partners. A gravity model is enhanced by different variables that capture differences in factor endowment. The model is estimated for an annual panel of agricultural trade flows of nearly 10,000 country pairs for the period 1970 to 2010. We show that the interpretation of the distance coefficient as transport costs’ effect is misleading as the transport cost related effect of distance is underestimated if the model does not account for differences in growing conditions. Particular, a trade increasing effect for North South distance shows up. Moreover, we find that this pattern is clearer the more disaggregated the product group is.
    Keywords: Trade, Transport costs, distance, North South, International Relations/Trade,
    Date: 2014
  12. By: Ottaviano, Gianmarco; Pessoa, João Paulo; Sampson, Thomas; Van Reenen, John
    Abstract: What would be the economic effects of the UK leaving the European Union on living standards of British people? We focus on the effects of trade on welfare net of lower fiscal transfers to the EU. We use a standard quantitative static general equilibrium trade model with multiple sectors, countries and intermediates, as in Costinot and Rodriguez-Clare (2013). Static losses range between 1.13% and 3.09% of GDP, depending on the assumptions used in our counterfactual scenarios. Including dynamic effects could more than double such losses.
    Keywords: Trade,European Union,welfare
    JEL: F13 F17
    Date: 2014
  13. By: Kumagai, Satoru
    Abstract: In this study, we try to elucidate the middle-income trap from the viewpoint of international trade. We conduct regression analyses on the relationship between income level and net export ratios for different types of goods for trapped and non-trapped samples separately. Our findings indicate that industrial upgrading appears to occur exactly as depicted by the flying-geese model for non-trapped countries while trapped countries tend to depend on the export of primary commodities, and industrialization appears to be driven by forward linkages to processed goods and a narrow base. The results of our analyses suggest that the middle-income trap is a form of Dutch disease or a 'resource curse' in the middle-income stage.
    Keywords: Myanmar, International trade, Economic development, Middle-income trap, Malaysia, Trade structure, Flying geese
    JEL: F14 O10 O53
    Date: 2014–11
  14. By: Sheldon, Ian; McCorriston, Steve
    Abstract: In this paper, analysis is presented relating to the impact of border measures for climate policy on the problem of carbon leakage, and the related issue of competitiveness in the US aluminum industry, which can be characterized as oligopolistic. Specifically, it is shown that an appropriate border measure depends on the nature of competition in aluminum production, as well as the basis for assessing the trade neutrality of any border measure. If trade neutrality is defined in terms of market volume, even though carbon leakage is reduced, US aluminum producer competitiveness cannot be maintained. This compares to defining trade neutrality in terms of market share, which results in US aluminum producer competitiveness being maintained and global carbon emissions being reduced. In either case, US users of aluminum incur deadweight losses.
    Keywords: climate policy, carbon leakage, border measures, aluminum, Environmental Economics and Policy, Industrial Organization, H87, Q38,
    Date: 2014–05
  15. By: Facchini, Giovanni (University of Nottingham); Testa, Cecilia (Royal Holloway, University of London)
    Abstract: This paper studies why illegal immigration is widespread. We develop a political agency model in which a politician decides on an immigration target and its enforcement, facing uncertainty on the supply of migrants. Illegal immigration can arise for two reasons: the policy maker may be unable to enforce the target because supply is higher than expected; alternatively, he may underinvest in enforcement because of electoral concerns, and this occurs only when the incumbent and the majority of voters have different preferences over immigration. Empirical evidence provides strong support for our predictions, highlighting how electoral concerns shape illegal immigration flows.
    Keywords: illegal immigration, immigration policy, political economy
    JEL: F22 J61
    Date: 2014–09

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